My Thoughts for the Week of Nov 24, 2014

Happy Thanksgiving, typically a strange week for the bond and stock markets in that there is not a lot of activity or excitement. This year though November as a whole has been pretty quiet. The bond markets and interest rates have been trading in a tight channel for 20 sessions now, holding firm after rates dropped in October. This has been welcomed by the Real Estate industry as we’ve all been bracing for interest rates to end the year higher. This just hasn’t happened yet. The number of analysts that were sure interest rates would be 50 basis points higher by now have been exiting the building.

The 10 Yr Treasury is not likely to increase much between now and the end of the year. For all of the talk and discussion, the bond market is not buying into the idea the US economy will grow quickly enough to increase inflation concerns. If inflation stays low, the Fed should keep their rates low. Another factor that’s not being talked about but possibly one of the key forces keeping rates low is hedging against the increasing potential of a decline in the stock markets. Large investors and hedge funds should be moving into treasuries; there is very little risk in doing so and there is an increasing risk the stock market may be close to a big correction. Stocks have been pushing higher for almost 5 years now, outpacing earnings growth. The cowboys will run out of ammo at some point.